It’s tax time!  Did that sentence about taxes make you cringe?  Does talking about, “How to file your own taxes?” make you dizzy and uncomfortable?  This article is written to give you the information you need to feel confident if you choose to file your own taxes.

This week I was contacted by a tax fraud and security expert, Brent Scott.  He offered to write a guest post with his advice, and links to some IRS tips on how to securely and safely file your tax return without paying an accountant hundreds of dollars to do it.  Since I am not a CPA (Certified Public Accountant), or a tax expert, I thought his advice could be helpful.  Filing and paying taxes are something every money-earning human being has to deal with at least once per year.  For example, this year I paid an accountant $350 of my hard-earned money to file my taxes for me.  He does a great job navigating my complicated tax situation, and legally and ethically filing my taxes, but I do hate the feeling of writing a check worth hundreds of dollars every year for something I may be able to do on my own for a fraction of the cost, or free!  I’ll interrupt occasionally in red to offer my own real-life experience filing my own taxes, or if I can share any personal tax-filing stories which may be helpful.   So take it away, Brent…

What you Need to Know To File Your Own Taxes:

Deadlines, refunds, deductibles — many of us become overwhelmed with the stress of getting our taxes done on time.  This stress often leads us to pay an accountant to do the dirty work for us, or not doing it at all (Yikes!). According to data released by the IRS, 5.5 million fewer Americans filed their taxes in 2017 than in 2016. The reason for why is up for debate, although some argued it was from mere procrastination. The harder we think something is, the more likely we are to put it off. But doing your own taxes may not be as big of a mountain as you imagine.

Preparing your own taxes can boost your confidence and empower you with invaluable knowledge that will motivate you to make better financial decisions throughout the year.  You’ll have a better idea of where your money is; where it’s going; and how the government tries to separate you from your money in the form of taxes.  In addition, you’ll be able to save the money you would have spent on a professional tax preparer.

But Wait: Should You File Your Own Taxes?

There’s really no one-size-fits-all answer to this question.  But there does come a point when your taxes may become so complex that it’s better to ask a professional for help. Ultimately, it comes down to your personal comfort level with your financial situation.

Generally speaking, you should do your own taxes if you have a straightforward financial and tax situation. Roughly speaking, you’re in a pretty straight-forward tax situation if you don’t have dependents, businesses, investments, significant assets or charitable contributions.

On the other hand, if you earn over $200,000 a year, hiring a professional may be in your best interest. According to Kiplinger, many details in your tax return can trigger an IRS audit. Your likelihood of an audit increases once your household income surpasses $200,000. This chance increases if you earn over $1 million annually. This means that you’ll want to make sure you’ve really crossed your t’s and dotted your i’s when filing your own tax return if you’re in a very high income bracket.

You may also want to hire a professional to file your tax return if you’ve had a major life change in the last year, or have a more complicated situation which may include dependents, investments, assets, and businesses, or want to itemize your deductions. These factors make doing your own taxes a bit more complicated. Again, it doesn’t make them impossible.  It all depends on how comfortable you are taking on the challenge.

5 Tips For Filing Your Own Taxes:

If you’ve decided that you are comfortable trying to file your own taxes, here are a few strategies to help you make the process as painless and unsurprising as possible.

1. Get In The Right Mindset & Set Aside The Time:

According to the IRS, you need approximately 16 hours to do the preparation work for the basic 1040 form. Gathering the documents you need to properly file isn’t something you can do quickly. It’s not impossible — you just have to be able to devote the time, and be ready to research any questions you may have as you move along.

Filing your own taxes requires patience, determination, and focus, and being okay with the fact that you may end up needing to fix errors — which really isn’t a huge deal!  I’ve listed ample resources here to help you navigate any potential errors.

2. Take Inventory Before You File Your Own Taxes:

Start out by taking stock of your financial situation over the past year, including:

• Marital status
• Dependents
• Home-ownership
• Retirement planning
• Receipt of federal benefits

Then, gather all the basic documents that are required for filing:

• Last year’s tax return
• W-2’s and 1099s
• Any other documents showing your income
• Mortgage, student loan, and interest statements
• Health savings and retirement account records
• Any receipts or bank statements required for certain deductions

(Hi, it’s Bill.  Being that I am self-employed, I also have to add up all my business expenses into different categories that I can deduct from my business profit.  I have hired an accountant to file my taxes the last four years, and he has had me list all my expenses into these 31 categories:)

Standard List of Expense Categories For Self-employed people:

• Owner’s Personal Expenses
• Loan Payments
• Sales Refunds
• Payroll
• Insurance (Not Benefits)
• Supplies
• Legal and Accounting.
• Advertising and Promotion
• Rent
• Commissions
• Vehicle Expenses. Or Mileage; whichever is greater.  (Since my car is 14 years old, the mileage is almost always more efficient for me to deduct than the yearly expenses I pay to drive it.) 
• Travel
• Utilities
• Licenses and Permits
• Taxes (Specify Type)
• Freight
• Repairs and Maintence
• Interest
• Meals and Entertainment
• Bank Fees and Charges
• Charitable Contributions
• Office Expenses
• Miscellaneous (An accountant told me long ago to avoid this category when possible. “Miscellaneous” tells the IRS: “Let’s look more into this.”  So avoid Miscellaneous when possible.)  
• Equipment Leases
• Dues and Subscriptions
• Bad Debt
• Contract Labor
• Fines and Penalties
• Health Insurance
• Life Insurance
• Disability Insurance

So a lot of my personal tax-preparation time is just organizing the hundreds of receipts I save throughout the year that I can attribute to my businesses (sales and real-estate), and adding my business expenses into these categories.  

If you didn’t get a tax document you need by January 31st each year, here’s an IRS resource for what to do.  Loan and mortgage interest statements can normally be found by simply logging in to your online investment accounts.

3. Understand Your Tax Credit and Deduction Options:

Tax credits and deductions change every year.  The constant stream of changes make this the most difficult step.  It’s critical that you understand which credits and deductions you qualify for.

Individual credit categories include the following:

• Family and dependents
• Income and savings
• Homeowners
• Health Care
• Education

And deduction categories include:

• Work related
• Itemized
• Education
• Health Care
• Investments

The quickest way to figure out your credit and deduction options is to comb through the IRS website.  This IRS credits and deductions for individuals page will explain all the current year’s changes that you may qualify for. If you are still unsure of something after reading through, you can always contact an IRS representative here, and they can assist you.

Then, the name of the game to complete your tax return becomes finding the right forms. The most common ones include:

• Form 1040 — Used by most U.S. citizens and residents.
• Schedule A — Used for calculating itemized deductions.
• Form 1040-ES — Used for calculating and paying estimated tax on income that isn’t subject to withholding.
• Form 1040 EZ — Used if there are no itemized deductions, adjustment claims or tax credits.

4. Know Your Tax Filing Options:

Doing your own taxes doesn’t mean that you’re completely on your own and can’t get help. There are many freemium options you can look to for help (see below):

The IRS:

The IRS offers free tax assistance to people who meet certain qualifications. This assistance is made possible by two volunteer programs. One is known as the Volunteer Income Tax Assistance Program (VITA), which is an option for those who make $54,000 or less. The other is called the Tax Counseling for the Elderly Program, or TCE, and is available to people 60 years and over.

E-Filing:

The number of tax returns safely e-filed continues to grow each year. As of April 2017, more than 122 million tax returns were e-filed for 2016. Using a free e-filing service will eliminate a lot of the confusion and frustration you may experience otherwise, and the IRS has their own free file program. If you make below $66,000, you can use their free software. Otherwise, they offer free file fillable forms here.

Other options include software like TurboTax, but they sometimes make it difficult to access the free version of their service. For example, if you use them two years in a row, you’ll have to pay to automatically input the data they saved from the first year.

5. File Your Own Taxes Early:

Doing your own taxes means you control the timeline. Controlling your tax timeline can be beneficial because there several really important benefits to filing your taxes early.

Avoid Identity Theft:

Criminals want your money without having to work for it.  That’s why criminals target your tax-refunds as an easy thing to steal.  While you can’t eliminate the threat of identity theft entirely, filing early can help protect your refund. How this works is: If a criminal files a tax return using your SSN before you do, the IRS will ignore your authentic tax-return since their records show you’ve already received your money. In 2016 alone, over 15 million consumers lost $16 billion to identity fraud.

If this does happen, it can take a long time to remedy the situation with the IRS.  So do everything you can to avoid it happening in the first place. But don’t rush doing your tax return — that will only lead you to make other kinds of costly mistakes.

Get a Bigger Refund:

That’s right. If you file your own taxes early, you’re more likely to get a bigger refund. Statistics from the IRS show that taxpayers who file by late-February get significantly larger refunds, by an average of $300 or so. Part of the reason this happens is because the sooner one starts on their taxes, the more focused you will be on making sure you’re claiming everything you’re eligible for.

While 66% of taxpayers claim the standard deduction, millions could get larger refunds if they itemized. But of course, this takes more time and documentation. However, the Government Accountability Office shows being patient could pay off. By not itemizing, tax-payers miss out on roughly $1 billion every year. Ouch if you’re part of that group.

In conclusion, it takes practice — like everything else in life — to become skilled at filing your own taxes.  If you’re filing for the first time, don’t be afraid to pay for software, or request help from a professional.  But from there, it can be done painlessly.  I encourage you to at least consider trying to do it yourself one year to see if you can learn a few things about your income, and how the government takes its share in taxes from you.  The more power, knowledge, and control you have over your finances, the less the government, or a CPA, can take more of your money away every year during tax time.

So that’s it.  Do you think you could file your own tax return?  When we were doing our own personal taxes this year, our CPA (A very wealthy, successful man who doesn’t need our $350 to survive) looked us in the eyes, and said, “You know, you could do this on your own if you wanted.” 

It got me thinking that I could at least try doing my own taxes, but this year was not the year I wanted to experiment with tax-related learning lessons.  In 2017, we sold stock so we had an abnormally high year for capital gain taxes.  We also bought our first investment property, and I had no idea how to efficiently file my taxes around the $183,000 investment we made on a rental property.  I was willing to pay a CPA a few hundred dollars to tell me how I should file my taxes in an hour, rather than spend a few weeks reading dozens of articles and learn how to file my taxes through trial and error on my own. 

But now that we have a template to go off, (using our 2017 taxes), I am at least open to trying to do my own taxes if I feel up for the challenge to learn something new, and save a few hundred bucks along the way.        

Would you, or do you, feel comfortable filing your own taxes?

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